For many small organizations, it is often difficult to maintain a strong internal control environment due to resource constraints. However, there are still measures small organizations can take to strengthen their internal control environment and prevent errors, fraud, and material misstatements from occurring.

Segregation of Duties

One way to strengthen the internal controls is by having proper segregation of duties. This can be done by dividing financial responsibilities among multiple employees to prevent one person from having complete control over a transaction, therefore reducing the risk for fraud. For small organizations, they could consider training employees on different tasks so they can cover for each other if needed. It is also important to divide responsibilities for authorization, recording transactions, and custody of assets. This is also a key area that board members can help oversee to ensure there is proper segregation of duties in place.

Regular Account Reconciliation and Documentation

Another way to ensure your organization has strong internal controls is by regularly reconciling accounts. While it is crucial to reconcile bank accounts monthly, it is also important to reconcile accounts such as accounts payable and accounts receivable to prevent misstatements from occurring. In addition to this, it is also important to maintain documentation such as invoices, receipts, and purchase orders to ensure all transactions are properly supported and to prevent fraud from occurring.

Implementing Access Controls

An additional way of protecting your organization’s financial information is by using access controls. Access controls protect sensitive financial information from unauthorized access. Examples of access controls include passwords, system access, and physical access. It is crucial for organizations to implement strong password guidelines and use two-factor authentication to prevent unauthorized access. Also, only give access to financial systems to employees who truly need the information to ensure only authorized personnel can access financial information. For physical access, consider restricting access to offices or storage areas through the use of keycards or locks.

These are just a few ways that small organizations can improve their internal controls. By following these steps, small organizations can help prevent errors, fraud, and material misstatements from occurring. This will give the organization security and will also improve the audit process. For personalized guidance, reach out to a member of our HBE Assurance Team.